Federal Reserve Issues New Rules for Overdraft Fees

With Congress threatening to create new consumer protection agencies to protect the public from customer-unfriendly banking practices, the Federal Reserve stepped in today to prove it is still relevant and involved with banking regulation. The Fed announced that as of July 1, 2010 for new bank accounts or August 15, 2010 for existing accounts, banks must have received permission from their customers before charging overdraft fees.

Overdraft protection will only be an opt-in service. There are some exemptions to this new rule, however. The only type of overdraft protection requiring customers’ consent is the type in which the bank covers the overdraft to cover the debit. If your overdrafts are covered by a linked savings account or credit card, you could still be charged a fee. Usually these fees are lower, such as $5 rather than $35.

Also, only overdrafts caused by transactions with debit cards or ATM cards qualify for opt-in only. If a customer writes a check that causes an overdraft when cashed, the bank is still free to charge an overdraft fee without the account holder’s permission. Banks still argue this overdraft coverage is a benefit that customers want and don’t mind paying the fee. Customers would rather have their rent or utility check go through if it costs $35 to cover the overdraft than to have their check bounce.

According to a recent survey by ING Direct, 24 percent of Americans are angry about overdraft fees. Are you angry? I can’t bring myself to get worked up about these fees, myself; avoiding them is pretty simple:

Don’t let your bank account get anywhere close to a zero balance. Always keep a buffer in any account you use for making payments. If you get close to zero, you are much more likely to fall into a bank’s trap, including multiple overdraft fees on the same day.

Don’t count on money you deposit into your account actually being there until you confirm that the cash is available. Sometimes check deposits take more than a week to clear, and banks can still pull back the funds for weeks after the deposit if there is a problem.

Banks will earn almost $40 billion from overdraft fees this year, and you can be sure the industry doesn’t want to see that practically free revenue disappear. When one door closes, another opens. Banks will innovate and find news ways to collect fees. We already see Bank of America planning to charge annual fees to credit card users who pay their balance in full every month. I expect the news will be full of stories about new fees for the next year.

I don’t mind over draft fees in the least bit. Maybe it’s because I am responsible and have never overdrawn a single cent on any of my 3 checking accounts.

As I see it, the banks are providing consumers with a service. Overdrawing on your account is YOUR fault and puts a hindrance on all parties involved, especially the bank which has to sort out your financial irresponsibility.

If you do not over draw, you do not get charged. If you are too irresponsible, don’t get a checking account in the first place!

The most frequent cause of overdrafts (from my experience working customer service for Bank of America) is people relying on the “available balance” number provided by the bank itself (either over the phone, at an ATM, etc.). And the most frequent cause of an inaccurate available balance is buying gas, because the gas pump only authorizes $1, instead of the $20 to $30 it really costs.

With inflated available balance information, the person then buys a cup of coffee and a muffin, and two days later has two items paid into overdraft and owes the bank an extra $50.

Here are all the ways we could fix this:

1) Get rid of debit cards
2) Force merchants to authorize accurate amounts, always
3) Teach 100% of people to keep their own register and know their real available balance (how many of your friends do this?)
4) Make overdraft protection an optional service

I think #4 is the most diplomatic choice. I handled calls from plenty of people who begged to be allowed to opt-out of overdraft protection, but the bank effectively didn’t allow it. I think this is great news, though I’d rather it came through Congress instead, since I don’t really understand the Fed.

Overdraft fees don’t bother me because I don’t overdraft. I keep an old-fashioned paper checkbook ledger and *that’s* where I go to check my balance. The balance I get online doesn’t show outstanding checks/bills. We as a country are more and more into abdicating personal responsibility. It drives me bonkers.

The problem isn’t that people are lazy, it’s that they know themselves and *want* to opt out of overdraft “protection,” but their bank won’t let them do it, because it’s too profitable.

This is especially true with the rise of debit cards causing more individual transactions. Ten years ago, if you wanted a cup of coffee, you would go to the ATM, get some cash, and use that to buy the coffee. If you didn’t have enough money the ATM wouldn’t give you money and you wouldn’t get coffee. Today, you use your debit card, and find out when you get your monthly statement that your coffee cost you $35. (The same applies to credit cards – they used to deny overlimit purchases, but now they approve them as a “convenience” to the customer and slap on an overlimit fee.)

I have accidentally overdrawn my account a couple times, but since it’s linked to my savings account, it only cost me a $1 fee.

When did it fall out of favor to keep a checkbook with all debits/credits? This is something that I thought was a basic tenet of fiscal responsibility.

If you are bogged down by chronic overdrafts (or if your teenager or college-aged kid is!), TRY THIS:

–Open a separate online savings account with ING (ingdirect.com) or other high-yield account. Opt to have $50 automatically (ACH) withdrawn from checking and deposited into savings…schedule the transaction to coincide with each pay period, either weekly, bi-weekly, every two weeks, whatever;

–Once you’ve managed to save up $250, go ahead and transfer it back into your checking account. ‘Forget’ the $250 is there in your checking…this is just a buffer to keep you far, far away from a zero balance, so HANDS OFF.

–Repeat the savings pattern until you have amassed an extra $1000 (or more) in your checking account. It sits there to save your a$$ in case of overspending and may also serve as a small emergency fund should you need funds in a hurry.

NOTE: Be careful transferring the savings back to checking…you can put money INTO savings accounts as often as you like, but banks limit the number of times one can transfer money OUT to 4 or 6 times per month (ask your bank for details).

This is all bull crap. The banks are now using a tool that was to cover the bank cost of processing overdrafts and are using it as a cash cow. I do admit in having overdrafts but there are always reasons for an overdraft. Consumers will NOT just throw away their money for no good reason. As myself I am disabled and have a very tight budget and my account runs very close to the wire sometimes. But the bank I deal with is like vultures waiting for an opportunity to hit me with an overdraft.
I am happy for those who never have an overdraft, but should not praise the banks in their unethical way they do business.

Can someone please let me know if they know the answer to this question..On june 10, 2011 i had three checks come in on the same day. when i checked my account on the internet at 1:30pm only two ($50 and $15.00) had come through leaving a balance in my account of 11.58. sometime later the other check came in which was 164.00. the bank backed out the prior two and took the highest dollar one first which went from one overdraft fee to three overdraft fees..Can they do that..? someone told me in church this morning that the new regulations were they had to take the smaller ones first or to take them in order as they came in…Please help me..this has cost me 90.00 instead of 30.00…you can email me at angel61368@aol.com if you know the answer to this…thanks

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